Black-Scholes model under subordination

DOI10.1016/S0378-4371(02)01372-9zbMATH Open1010.91029arXiv1111.3263OpenAlexW3101795776MaRDI QIDQ1860811FDOQ1860811

Authors: A. A. Stanislavsky 

Publication date: 26 February 2003

Published in: Physica A (Search for Journal in Brave)

Abstract: In this paper we consider a new mathematical extension of the Black-Scholes model in which the stochastic time and stock share price evolution is described by two independent random processes. The parent process is Brownian, and the directing process is inverse to the totally skewed, strictly alpha-stable process. The subordinated process represents the Brownian motion indexed by an independent, continuous and increasing process. This allows us to introduce the long-term memory effects in the classical Black-Scholes model.

Full work available at URL: https://arxiv.org/abs/1111.3263

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zbMATH Keywords

Brownian motionstochastic time evolutionstock share price evolution

Mathematics Subject Classification ID

Brownian motion (60J65) Microeconomic theory (price theory and economic markets) (91B24) Stochastic models in economics (91B70)

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Cited In (9)

• A subdiffusive stochastic volatility jump model
• Heavy-tailed fractional Pearson diffusions
• Option pricing in subdiffusive Bachelier model
• Black-Scholes formula in subdiffusive regime
• Continuous-time random walk and parametric subordination in fractional diffusion
• Mellin convolution for subordinated stable processes
• Approximation of heavy-tailed fractional Pearson diffusions in Skorokhod topology
• Retrieval of Black-Scholes and generalized Erlang models by perturbed observations at a fixed time
• Fractional Pearson diffusions

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